Bypass mail proposals draw ire from Alaska delegation

Legislation in the U.S. House of Representatives that would work to cut the cost of bypass mail to the U.S. Postal Service by millions has drawn staunch opposition from the Alaska congressional delegation, who are claiming the changes would have just the opposite effect on the rural freight system.

During a March 4 hearing of the House Subcommittee on Federal Workforce, U.S. Postal Service, and the Census, Deputy Postal Service inspector general Tammy Whitcomb testified that the Alaska-specific program lost $76 million last year, or 70 cents for every dollar of the $108 million the post office invested.

The Alaska Bypass Modernization Act would require the Postal Service to establish bypass mail rates that cover 30 percent of program costs in fiscal year 2015 and increase to cover half of the cost of bypass mail by fiscal 2020.

Oversight and Government Reform Committee chair and bill sponsor Rep. Darrell Issa, R-Calif., said postal ratepayers nationwide are sharing the burden of the bypass mail losses. His legislation, at current rate prices at freight levels, would save the Postal Service about $24 million per year.

Established in 1972 as a way to ease demand on postal facilities that were running over capacity, bypass mail supplies a large portion of the consumer goods used in rural Alaska. The program uses a complex system of rate and aircraft classifications depending on the route served to determine freight fees. Those rates are established by the Department of Transportation and imposed on the post office.

Air carriers transport the freight orders that could be anything from food to power tools to household items, directly to their destination without going through a postal facility. The carriers are paid by the Postal Service.

The current minimum shipping price for a requisite 1,000-pound palletized order is $365, according to Postal Service Alaska District Manager Ronald Haberman.

“I would like to point out that despite its costs, the bypass mail system works well for the Postal Service,” Haberman said.

Sen. Mark Begich said to the House committee that bypass mail saves the post office $45 million per year versus using standard postage because it cuts down on facilities and labor costs that would have to be incurred if the system were abolished. He testified that, “anyone citing the cost of bypass mail should include that ($45 million) figure.”

Rep. Don Young spoke off the cuff to the committee and said he did not know where the title of the hearing, “Alaska Bypass Mail Delivery: A Broken System,” came from.

“Chairman Issa has a strong interest, as I’ve said before, in legislating in my state,” Young said. “He’s worried about $70 million lost, supposedly. This would cost the Postal Service probably $200 million if they were to have this, what we call parcel post.”

Young said that the losses incurred through bypass mail are small when compared to the overall financial state of the quasi-government organization.

“There’s a $15 billion debt in the post office and you’re worried about $70 million,” he said to the committee.

The financial troubles of the Postal Service are well documented. The service reported a $354 million loss in the first quarter of fiscal year 2014 as well as $40 billion in unfunded liabilities driven by pension obligations. It marked the 19th net loss over the last 21 quarters, according to a USPS release.

Postmaster General and CEO Patrick Donahoe has said the Postal Service cannot continue on its current financial path without legislative action and will likely default on a $5.7 billion pension payment due Sept. 30 without significant help from Congress.

Begich lauded the Senate Homeland Security and Governmental Affairs Committee, on which he serves, for moving the Postal Reform Act that would give the Postal Service more freedom to manage its debt and allow for some funding surpluses to be put towards pre-funding pension payments. The Senate bill does not include any changes to the bypass mail system.

In written testimony, Sen. Lisa Murkowski stated that bypass mail saves the Postal Service $13.4 million per year by allowing a “huge volume of qualifying parcel post mail to literally bypass postal facilities.”

Processing bypass mail through “in-house” operations would increase the mail through Anchorage and Fairbanks facilities by nearly 1.7 million pounds per week, the Postal Service’s Haberman testified. More than 87 million pounds of intra-Alaska freight was moved via bypass mail in calendar year 2013, according to Haberman.

Deputy inspector general Whitcomb offered that eliminating the statutory restrictions limiting new carriers from entering the market could be a way to make the system more efficient, along with simply raising bypass rates to “eliminate its burden on other customers.”

She suggested the State of Alaska could reimburse the Postal Service for its bypass losses if the program remains the same with Permanent Fund money. To make up the $76 million 2013 shortfall the state would have only had to contribute 2.6 percent of the $2.9 billion the fund earned last year, Whitcomb testified.

Murkowski also testified that the freight system saves other federal agencies money by allowing them to ship goods for programs such as U.S. Department of Agriculture’s food aid programs more efficiently.

Additionally, she stated that the relationship between how many passengers the six mainline bypass mail carriers serve and how much mail they are allotted has encouraged increased passenger service in rural communities, thus leading to 40 fewer communities relying on Essential Air Service and saving the government millions.

The Alaska Bypass Fair Competition Act, also sponsored by Issa, moved out of the full Oversight Committee Feb. 11. It would open competition for mainline bypass service by shortening the time a carrier must participate in the program to be an existing mainline carrier to 36 months of continuous service. Currently, all existing mainline carriers must have met the detailed criteria as of January 2001.

Murkowski and Begich both testified that increasing competition among the now six mainline carriers would lessen the amount of mail each carrier transports and hurt the program’s efficiency.

Rate rollback

In February, Begich said he had gotten Postmaster General Donahoe to agree to roll back rate increases that went into effect Jan. 26 on large packages in the traditional mail system. Rates on packages heavier than 50 pounds had increased by up to 50 percent for some in rural Alaska.

At the time, Begich said Donahoe told him the sharp rate hikes were an unintended consequence of system-wide rate adjustments and would be scaled back as soon as possible in areas where the Postal Service is the only parcel carrier.

The rates are set to return to pre-hike levels March 20, according to a March 7 release from the senator’s office. It was that day that the Postal Regulatory Commission approved the rollback.

“There were some unexpected bureaucratic hoops but I am pleased that relief from the higher parcel post rates is on the way for Alaskans,” Begich said in the release. “My office has been hounding the Postal Service and the PRCD over the past month to expedite the process and I’m happy that we’ve cleared a major milestone today (March 7).”

March 20 is the end of the 30-day Federal Register notification period required for all rate changes.